At the beginning of March, Chancellor Rishi Sunak presented his Budget. His aim: to chart a course out of the economic damage wrought by the pandemic. A year earlier he had said he would do “whatever it takes” to protect jobs and businesses. Twelve months on, with Government borrowing breaking all records, it is clear that it will take a very long time to pay the bill for “whatever it takes.”
One of the key measures in the Budget was the freezing of personal allowances: the higher 40% rate was frozen at £50,270 from April 2021 to the 2025/26 tax year. This means that some 5m people in the UK – roughly one in six taxpayers – will be paying higher rate tax by 2026 as wages rise with inflation.
Is there any way to avoid this? The answer is ‘yes.’ For example, where possible within your allowances and caps, adding to your pension will help you save for the future and potentially avoid an increasing tax bill. Under the proposed tax freeze, someone now earning £49,000 whose pay rises by 3% per year will see their annual tax bill increase by £3,128 by 2026. However, if they were able to put £500 per month into their pension, their tax bill will be just an extra £609 – despite them earning an additional £7,804 by the end of the Chancellor’s freeze.
What the freeze on thresholds (that also sees the basic rate threshold frozen at £12,570) very clearly illustrates is the need to regularly review your financial planning.
The freeze on thresholds also applies to inheritance tax, with the IHT threshold frozen at £325,000. Many people will find themselves not only paying significantly more tax on their earnings but also seeing the value of their estates reduced by IHT.
The Daily Telegraph described the tax rises in the Budget as ‘eye-watering’, commenting that they take the UK back to levels of taxation not seen since the sixties. What’s clear is that the Chancellor’s decision to freeze thresholds to pay part of the bill for the pandemic makes long-term financial planning more important than it has ever been.
NB The notes above are necessarily brief and only cover some of the main points. If you think any of the above may apply to you, we recommend that you take timely advice from an appropriate professional adviser.
And remember, do not hesitate to contact us to discuss your financial planning needs. Reviews are part of our added-value services for our clients – we are here to help.
Barry Fleming & Partners has grown from a tax advisory background into a broader business that encompasses investment management. Both things matter for wealth management, retention and creation. That expertise makes the company strikingly different from others.
This capability allows Barry Fleming and Partners to use its strength in tax advice to take a 360-degree-view of a financial situation to give much broader, more comprehensive advice.
We bring together up to the minute tax, estate, investment and retirement planning advice to create individual, ‘joined up’ financial strategies. This allows our clients to understand and have confidence in how they can best control, retain, and build their assets and income to achieve their objectives with least risk.
A high level of service is key to our long-term client relationships. We work collaboratively. That means our clients can benefit at all times from having ready access to our team of financial planners.
Barry Fleming & Partners are an independent financial advisor specialising in ISA’s, Pensions, Tax, Trusts, Estate Planning, Inheritance Tax Planning (IHT) and other Financial Planning areas. Please don’t hesitate to call on 01488 608 686 and ask to talk to one of our financial advisors. Alternatively use the contact form on our home page.